Child Benefit Tax

daGingaPrince

I've received CB for 10 years or so now, about £150 per month I think. I've also recently changed job, lets say I'm now on £65K and now have to pay back the CB for the past year. I understand the CB tax laws: < 50K = 0%, 50-60K = 1% for every £100 earned.

Weighing up my options I can overpay into my pension by 15K and my tax would be 0; 10K and my tax would be 50%; 5% tax would be 100%..

Lets say I had ample savings to pay an extra 15K into my savings and pay 0% tax. Can I do this? What are the pros and cons? What have I missed

Dazed_and_C0nfused

Additional pension contributions is a common way of avoiding or reducing HICBC.

Given you are almost certainly also paying 40% tax on most of the income between £50,270 and £65k they will be very tax efficient as not only will you reduce HICBC (once adjusted net income drops below £60k) but also benefit from higher rate tax relief.

Don't forget that adjusted net income includes all taxable income, even that which might be taxed at 0% such as the first £500 (or £1,000) interest or £1,000 of dividends.

And existing pension contributions may also be reducing your adjusted net income.

The main limit to be aware of is the pension annual allowance of £60,000.

daGingaPrince

OK thanks for that info.

So what are the pros and cons for say putting £15Kper year into my pension, and using my savings to supplement my net income:

Pros:
- I can continue receiving child benefits (£150 per month)
- More money in my pension pot for retirement
- There is some higher rate tax relief that I can claim although not entirely sure of the details. I think the government put 40% into my pension as well.
- Pay less tax (40%) on my savings

Cons:
- Savings reduced and therefore tied up in my pension

Lets say I had a million pounds in savings (I don't) and am earning interest off that, and shares earning dividends... How does that affect reducing my gross to £50K, I presume those secondary earnings bump up my earnings beyond £65K and therefore I would need to increase my pension contributions even further to reduce my net to below £50K.

Veteransaver

If you regard tax as simply an annual "expense" you will save a lot more tax, so from a pure.profit and loss perspective it's the right thing to do. Main consideration is just your cash flow for living expenses and if you are utilising ISAs to supplement your net income you'll have a bit less flexibility in future for tax free income.